Jeffrey Gundlach has warned that investors should not expect Fed rate cuts at the central bank’s next policy meeting, arguing that inflation pressures and bond-market signals leave policymakers with little room to ease.
The DoubleLine Capital chief executive said expectations for lower rates this year have become harder to justify as inflation remains sticky and short-term Treasury yields sit above the Fed’s policy rate. His comments add to a wider Wall Street debate over whether the Federal Reserve can support growth without reigniting price pressures.
Two-Year Yields Are Sending a Warning
Speaking on Fox News’ Sunday Morning Futures, Gundlach said the market had previously expected two Fed rate cuts this year, but inflation-linked indicators had failed to support that view.
“People were looking for two rate cuts this year, but the inflation market has simply not cooperated,” Gundlach said. “It’s just not possible, in my view, to cut interest rates when the two-year Treasury is almost 50 basis points higher than the Fed funds rate.”
Gundlach also said Kevin Warsh, newly confirmed as Federal Reserve chair, is taking over at a difficult moment for monetary policy.
The pressure has intensified as the war with Iran pushes oil prices higher, feeding concerns that energy costs could flow into broader inflation data. Gundlach pointed to April’s consumer price index, which rose 3.8%, its fastest pace since May 2023.
DoubleLine’s internal models suggest the next headline CPI reading could move above 4%, he said.
Oil Prices Have Complicated the Fed’s Path
The problem for the Fed is not only the current inflation reading, but the direction of travel. A jump in oil prices can quickly affect transport, manufacturing, consumer goods and household energy bills, making it harder for central bankers to argue that inflation is cooling sustainably.
That matters because rate cuts are usually easier to defend when inflation is falling and financial conditions are tight. Gundlach’s point is that today’s market setup sends a different message. If short-term Treasury yields remain elevated while inflation accelerates, a cut could risk looking premature.
The bond market has already made this harder for policymakers. Investors often look to the two-year Treasury yield as a rough gauge of expected Fed policy. When it trades meaningfully above the Fed funds rate, it can suggest that markets are pricing in tighter conditions than the central bank’s current setting.
Stocks Keep Climbing Despite the Inflation Risk
Gundlach said equities have remained surprisingly resilient even as inflation concerns build. “When the Fed isn’t doing anything about the inflation problem, the stock market goes on a tear,” he said.
He described the stock market as expensive and speculative, but said stronger-than-expected earnings have helped sustain investor appetite. That combination has created a difficult backdrop for asset allocators: bonds have produced weak returns, while speculative capital has also been pulled toward prediction markets and away from assets such as Bitcoin.
Gundlach said he has been bullish on commodities for about three years, a stance that now looks more relevant as oil shocks move back into the inflation debate.
The investor also repeated his concerns about private credit, saying he remains worried about the sector’s need to attract fresh capital. He suggested that sponsors may be driven by the desire to keep increasing assets under management.
What Investors Watch Next
The next CPI print now carries greater importance for markets. A headline number above 4% would likely strengthen the argument against near-term Fed rate cuts and could force investors to reassess expectations for bonds, equities and commodities.
For Warsh, the challenge is immediate: convince markets that the Fed can contain inflation without destabilising growth. For investors, Gundlach’s warning is a reminder that the rate-cut trade depends less on hopes for relief and more on whether inflation data finally gives the Fed permission to move.
